SAP's official announcement of Business ByDesign, formerly known as A1S, targets midsize companies looking for relief from complicated ERP implementations and support. Some key points regarding the Business ByDesign (BBD) announcement:

• The solution will be provided as a hosted, subscription service

• A dedicated website enables a try-before-you-buy sales approach, where customers can rapidly configure a demo system that reflects their needs

• Pricing is set at $149 per user, per month, with an nominal charge for self-service users

• SAP has 20 live early adopters and another 20 that are actively engaged in rolling the solution out. The initial emphasis is on US and Germany, with expansion to more markets in 2008 and 2009.

What is good or differentiating about the Business ByDesign offering? The configuration tooling is innovative, allowing customers and prospects to rapidly select the basic functionality and configure organizational structures using graphical tools. In addition, there is a more technical configuration layer that is provided graphically via detailed process maps. Customers have flexibility to configure workflows as well as business logic via this model-driven design, without code-level customization.

As a software-as-a-service play, the solution is considerably more comprehensive than competing SaaS solutions, which are typically point solutions. Over time, however, SAP will face significant competition for this type of solution. Current competitors include NetSuite and Workday, and we expect Microsoft and Oracle to eventually compete with this type of offering as well.

The product launch announcement is only the first step of a ramp-up process that will play out in 2008 and 2009. While SAP asserts that the product itself is relatively complete at this stage, considerable work remains to refine sales, partnering, hosting and other aspects of the business model. For example, potential overlap and channel contention across BBD, Business One and All-in-One must be addressed beyond the current the use of buckets based on targeted employee size.

The product’s usability is less than compelling, with the continued use of very small fonts and grid-like presentations of transactional data that are characteristic of the flagship ERP solution. While the system is designed to be role-based, SAP is offering a simplistic one-size-fits-all pricing model of $149 per user, per month (a limited self-service option is also offered). A more refined, role-based pricing strategy would encourage more widespread adoption and better align pricing to customer value.

Overall, Business ByDesign is a bold play by SAP to profit from the growing acceptance of software-as-a-service, addressing key customer pain points related to lengthy implementations and complicated upgrades. The ultimate success of this initiative will depend on entirely on the volume of customer adoption, where critical mass is needed to provide a profitable recurring revenue stream.